Another familiar gripe - A little outstanding amount remaining on the credit card because of bank’s mistake, bank promises to waive off the amount and close the account.

But, surprise! The account has remained open, accruing interest. In a fairly new twist to this scenario, the bank now proceeds to divert payments made to credit card account to the customer’s loan account. Result? Outstanding dues in both accounts. Long term result? Credit card applications being rejected, loan applications being rejected…

The customer is not willing to pay the remaining amount because, he thinks, rightly, that he shouldn’t be left holding the baby because the bank screwed things up. And he asks, very sensibly, what are the guarantees that the bank will act towards removing his name from the defaulters’ list? (which, by the way, the bank cannot. Once your name appears on the defaulters’ list, it is there to stay for the next seven years.)

The answer to all this is not calculated to have customers such as the one mentioned above burst into song. The best way to deal with this kind of blatant chicanery is to indeed pay the outstanding amount up first. The more one delays, the more it affects the credit ratings. Once this is done, one should register a complaint on the bank’s website. And if one does not receive a satisfactory response within 2-3 weeks, approach the Banking Ombudsman with your complaint. Details on how to do this are available on the site - www.bankingombudsman.rbi.org.in.

In the current scenario when inflation is at its peak the middle class is going to be in the soup. They need to be aware of many ways in which they have to maintain their basic standard of living, for which people fall into the trap of debt. The most common and easily available loan to for a cash infusion with the lowest documentation is the personal loan. All loans if not taken for a purpose that is not of need it causes pain and could lead to distress.

Let’s see how an individual lands up in a debt trap:

Mr. X belongs to a middle class family with four dependants. His father is retired person. His mom and wife are not earning members of the family. Mr. X is the only bread earner for the family. He has a daughter who just started with schooling. Due to unavoidable personal responsibilities he had to take a loan of Rs.1,00,000 at 21% for one year. The EMI was Rs.9311.37. He was working with a private limited company where the pay is just so-so. His take-home pay is hand to mouth. After taking the loan, within the next three months he lost his job. He was unable to pay the EMI on time. He defaulted on his payments with the bank. After few months he got a job in a good MNC company and wanted to take on one more personal loan to repay the previous loan and come out of the defaulters list.

Since Mr. X already defaulted once, it would be difficult to fetch him a personal loan. To pay back the first debt he wants to go for a second personal loan. This would make him fall again in the debt trap. This time it would be difficult for him to come out of it.

Before taking a personal loan think that whether you genuinely require it or not. In case you have decided to go ahead for a personal loan do not just go with one bank and stick with their terms. A bank knows that a personal loan is more of an “individual’s requirement”. It is not a product which the bank needs to sell or offer it to the people. In current situations many of us are forced to perform things which we do not like, but still we have certain responsibilities to fulfill. This compel us take a personal loan to meet our current obligations or desires only. One does not even consider how much essential one’s credit-worthiness is. In future when one actually requires a personal loan it will not be easy. The bad track record would be an obstacle. It is better to find out with more banks and financial institutions with what rates they offer. Then take a call and find a best deal.

The other option is to take a secured personal loan. They have lower interest rates. The securities which lie in the lockers are of no use to us. In India we are very emotionally attached towards our possessions and we feel we can not deploy them for taking a loan. But if in case it fetches a lower rate of interest on your personal loan, then those possessions are invaluable. In India by personal we understand it is unsecured in nature. Our insurance policy, shares, investments made in National Savings Certificate, Kisan Vikas Patra etc can help you get a personal loan at a lower interest rate which other wise would be very high.

A personal loan is easy to obtain because the interest rate charged are very high. In financial markets there is nothing said as free lunch, you pay for each and every thing you want. So it is sensible to approach many banks and then go ahead with that bank which can offer you the best deal. Loan against security would be a better option. It will not give you sleepless nights.

A fraud transaction was made on the internet through my HDFC Bank credit card. I got my card blocked immediately. My card showed a debit balance for 1 year. A replacement card was issued by HDFC Bank to me, after reversal of the transaction amount and charges. However, I am not able to get new card from other credit card companies because of my name in defaulter list (CIBIL/ Stayam’s Defaulter list). How can I get a new card and remove my name from defaulter list?

I had a HSBC credit card, the dues of which were settled in August 2004 against a waiver of Rs. 8, 000. I had given out-station cheques towards the settlement which took 15 days to get cleared. The settlement letter which was received subsequently mentioned that there was not overdue and the card would be closed.

Recently, my personal loan application was rejected, the reason being that my name is in the defaulter’s list. On enquiring from HSBC, they informed that I am still to pay Rs. 49, 000 as the settlement stood null and void due to late payment whereas the settlement letter only said that it would be nullified in case of payment defect only. The delay in payment was due to the 15 day gap for cheque clearance. HSBC is demanding Rs 49, 000 to send a letter to CIBIL stating that I have cleared my outstanding. What do I do? Is there a legal route? Should I approach the Banking Ombudsman?

I had applied for a car loan in the month of October (2007) from HDFC Bank and it was approved. But, at that time, the HDFC Bank executive told me that my name shows in the defaulter’s list as Richa. One of my cousins has the same name.

When I applied for a personal loan from Barclays Bank, they rejected it, stating the same reason. I am sure my cousin never took the loan or ever used any kind of proof from my end of such a thing. What do I do?

Are you aware that if you have a credit card from the bank that you have an account with, the bank is under no legal obligation to inform you before debiting your account towards your credit card outstanding?

For instance, let’s assume you have a credit card from the bank where you also have a savings account. You swiped your card towards a few purchases and ran up a hefty bill. Your credit card bill has come in. And the next one. And the next one. You have not paid off the dues despite repeated instructions from the bank.

The bank is now well within its right to freeze your account and debit a portion of the outstanding. These debits will continue until the outstanding is fully paid off. Meanwhile, you will not be able to operate your account (except perhaps to deposit money into it!). Once your dues are cleared, you will retrieve operating rights on your account.

Banks usually resort to this extreme after repeated letters and warnings. Note that the letters and warnings DO NOT warn you that they are going to dip into your savings account. That’s a surprise that will come completely undiluted once you line up at the bank ATM to withdraw much needed cash. Therefore, make sure that you pay at least the minimum required payment towards your credit card outstanding. Banks love customers who keep paying minimum payments. It means that the outstanding balance keeps collecting interest and let’s face it, banks love interest payments.

I had a problem with Standard Chartered Credit card in 2000. It was a company expense card and had a few issues with payment. Later, I tried to settle the dues with the bank and the collection agent made a receipt of final settlement and promised to give the no dues letter from the bank. However, that letter never came, I had left city/country for some time and this matter was pending. I understand that my name would be in the defaulter’s list and it would be difficult to get another loan /card. How do I re-resolve this issue?